EU, US approve, Microsoft + Yahoo search partnership is go

After announcing the search deal in July 2009, Yahoo and Microsoft have finally received regulatory clearance from both the US Department of Justice and the EU. Under the agreement between the two companies, Yahoo will use Microsoft's search platform to power its search results and paid search listings. Yahoo will handle customer relations with high-volume advertisers for both companies. Self-service advertisers will continue to deal with Microsoft directly. A similar deal between Yahoo and Google was abandoned after the Department of Justice threatened an antitrust lawsuit.

For Yahoo users, the visible difference will be that Yahoo search results will be identical to those of Microsoft's Bing. Yahoo will continue to offer its own content to Web users to provide more than just search results. The companies believe that this partnership will enable them to better compete with the dominant Google.

Google's dominance is indeed the reason that this deal was permitted where the Yahoo-Google deal was not; with Yahoo having only 7.4 percent of the search market and Microsoft's Bing only 3.2 percent, the tie-up will not make the search market substantially less competitive. Bing's market share has been increasing, especially in the US, but much of this growth has occurred at Yahoo's expense. The ten-year deal will provide Microsoft with considerably more access to the search market, and the company will also take on some 400 Yahoo employees.

For its part, Yahoo will receieve the lion's share of the advertising revenue—88 percent for the first five years—as well as cash payments totaling $150 million from Microsoft to help pay for the transition to the Bing technology. Yahoo predicts annual operating profit growth of up to $500 million as a result of the partnership.

The technical aspects of the integration are likely to start within days. Yahoo US should be using Bing by the end of the year; a full global transition will take longer, and is not expected to be complete until early 2012.